Global shares experienced a decline on Monday, continuing last week’s slide, as central banks reinforced the message that interest rates would remain higher for a longer period. Investors are anxiously awaiting high-stakes U.S. inflation data, which is set to be released on Friday.
Last week brought a series of mixed messages for investors. While the European Central Bank and the Bank of England hinted that they might not raise rates again, the Federal Reserve, on the other hand, kept rates unchanged. However, Chair Jerome Powell made it clear that the soft landing that many investors were anticipating was not his base-case scenario.
The MSCI All-World index, which is on track for its worst monthly performance this year with a 3.6 percent drop, fell by 0.3 percent on the day.
U.S. 10-year Treasury yields reached 4.5 percent for the first time since October 2007 and were up 4 basis points at 4.485 percent on Monday. This marks their largest monthly rise in a year, reflecting investor concerns about the economic outlook.
Frederic Ducrozet, head of macroeconomic research at Pictet Wealth Management, explained, “It’s not about the fact that the 10-year is over 4.5 percent — whatever the number is, you get this feeling in the market the pain threshold is getting closer. That is the story.” He further highlighted that while equity-market performance and valuations have remained strong, cracks are starting to appear, especially as the oil price edges towards $100 a barrel and stocks outside the tech sector struggle to make significant upward progress.
Ducrozet added, “This is all happening at a moment where this resilience is coming to an end. We were already expecting substantial weakness to materialize in the U.S. economy — it’s happened already in Europe — and on top of that you have the cocktail of shocks coming that Powell mentioned last week.”
The risks mentioned by Mr. Powell during a press conference last week include the autoworkers’ strike, potential government shutdown, the resumption of student loan repayments, higher energy prices, and higher long-term borrowing costs.
S&P downgraded its forecast for Chinese growth to 4.8 percent in 2023 from 5.2 percent and to 4.4 percent in 2024 from 4.8 percent. The downgrade was attributed to limited fiscal and monetary stimulus thus far. Chinese shares fell following a rebound on Friday, driven by concerns surrounding the property market. Additionally, the embattled developer Evergrande announced on Sunday that it was unable to issue new debt due to an ongoing investigation into its main domestic subsidiary.
Jittery trading was observed due to a week-long national holiday that started on Friday.
The rise in Treasury yields provided a boost to the dollar, which saw a 0.14 percent increase on the day. The dollar experienced its 10th consecutive week of gains last week, marking its longest stretch since 2014. This occurred as investors rushed to abandon their bets on the Fed cutting rates next year.
Andrew Lilley, chief rates strategist at Barrenjoey, explained, “What’s driven the move this year is the acceptance that inflation shock isn’t transitory, but is going to require restrictive monetary policy for much longer than we first thought.”
The upcoming U.S. data will play a crucial role in shaping expectations. U.S. business activity in September was essentially at a standstill, with the services sector operating at its slowest pace since February.
The core Personal Consumption Expenditures Price Index, which is the Fed’s preferred inflation gauge, is due to be released on Friday. The data may help shape expectations for the Fed’s November meeting.
In the currency markets, the yen remained close to the 150-per-dollar mark, a level that many traders believe could prompt the Bank of Japan to intervene. The Bank of Japan maintained its ultra-loose monetary policy last week. Governor Kazuo Ueda emphasized the central bank’s determination regarding interest rates and expressed uncertainty about whether companies would continue to raise prices and wages.
The yen was last seen at 148.525 per dollar, just above the 10-month low of 148.580.
Oil prices rose on Monday, reaching nearly 10-month highs. Brent crude futures increased by 0.5 percent to $93.73 a barrel, while West Texas Intermediate rose by 0.4 percent to $90.34.
More detail via www.theepochtimes.com here… ( Image via www.theepochtimes.com )